Sterling posts biggest daily rise in nine months; above $1.42

LONDON (Reuters) - Sterling jumped above the $1.42 line on Wednesday and is set for its biggest daily rise in more than nine months as strong British employment data and broad-based dollar weakness prompted investors to ramp up long positions in the currency.

FILE PHOTO - UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

In recent days, sterling has notched up a series of fresh highs since the vote to exit the EU in June 2016 sent the pound tumbling. The latest boost was provided by upbeat jobs data which allayed fears the economy was struggling and fuelled some bets the central bank may raise interest rates more than once this year.

The pound is up as much as 1.6 percent on Wednesday, on track for its best month against the U.S. currency since the middle of 2010, rising more than five percent so far this month.

“The fuel behind the rocketing sterling can be traced to the breakdown of the dollar against its rivals and the strong unemployment data, though it remains within broad ranges against the euro,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London.

(Graphic for Sterling on track for best monthly gain since mid-2010, click reut.rs/2DwAbQR)

The British currency also climbed against the euro, hitting its best level in six weeks.

Market analysts said the labour data had helped sterling, although dollar weakness and broader positive sentiment for the pound were also behind Wednesday’s gains.

Official data showed that UK employment surged to a record high and regular wages rose at their fastest rate in almost a year.

“The pound was already doing quite well. There’s momentum in that and the data adds to this,” said Bilal Hafeez, macro strategist at Nomura in London.

The British currency rose as high as $1.4232. Against the euro, the pound was trading at 87.11 pence per euro.

Brexit minister David Davis said on Wednesday that he expects Britain and the European Union will agree to a transition deal on exiting the bloc by the end of March.

With traders believing that the risks of a disorderly exit from the EU are receding, investors are looking for signs the Bank of England could hike interest rates more than the single raise this year that the market has currently priced.

Interest rate expectations moved up slightly after Wednesday’s employment data, analysts said, given the BoE is watching for signs of pay growth before raising rates again.

“The labour data was positive. But it’s not good enough to suggest wage developments are putting upside pressure on inflation,” said Manuel Oliveri, an FX strategist at Credit Agricole.

British government bond prices extended their fall across the board and the internationally-focused FTSE 100 was down 0.8 percent.

The yield on five-year British government bonds rose back above its peak on the day of June 2016’s Brexit vote on Wednesday for the first time since the referendum, bolstered by strong British employment data and a broad-based rise in global yields. [GB/]

“Certainly dollar weakness is a part of this move higher. But this is also a story of sterling resilience,” said Jane Foley, London-based FX strategist at Rabobank.

Against the currencies of its biggest trading partners, sterling is at its highest level since mid-2017, but remains far below levels seen before the Brexit vote.

Additional reporting by William Schomberg, Julien Ponthus and Saikat Chatterjee; graphics by Ritvik Carvalho, Editing by William Maclean